Citi to close hedge fund founded by Pandit

New York, June 12 (IANS) Citigroup has decided to close a hedge fund that its chief executive Vikram Pandit co-founded, and which the banking behemoth bought for more than $800 million. Citigroup plans to shut Old Lane Partners and buy what is left of its assets, the Wall Street Journal reported Thursday. The fund has been dogged by mediocre returns and the loss of top managers.

Pandit personally made at least $165 million when Citigroup bought Old Lane at a time when hedge funds were considered a lucrative new business.

But when Old Lane started struggling, Citigroup had a choice of pumping new money into it or shutting it down, creating an awkward situation for Pandit who took over as chief executive last December.

Pandit removed himself from the deliberations to avoid the perception of a conflict of interest.

Citigroup officials considered replenishing Old Lane with $1 billion to $3 billion of the bank’s own capital. Old Lane chief executive Guru Ramakrishnan, in a memo last month to trading partners and lenders, said the fund had secured a “substantial” amount of fresh capital, the Wall Street Journal said.

But eventually, the group decided against investing further in the fund. Its resources have been strained by falling housing prices and the credit market mess, and has had to make layoffs and other cutbacks following losses of nearly $15 billion for the past two quarters.

Old Lane’s demise, according to the Journal, suggests that hedge funds, typically known for their independence and entrepreneurial spirit, may have trouble thriving within huge financial institutions.

Pandit was a long-time Morgan Stanley executive and seen as a contender for the top post there until his ouster in 2005. Next year, he co-founded Old Lane, one of the biggest hedge funds, raising $4 billion in less than nine months. The list of investors he lined up included Singapore’s government investment fund and Harvard University’s endowment.

Old Lane had amassed about $4.5 billion in assets when it was acquired by Citigroup. Charles Prince, then Citigroup’s chief executive, touted the deal as “a unique opportunity to continue our growth in the highly competitive alternative investment area”.